Leading industry advisors have challenged the rationale for segregation of customer money as a key part of proposed Atol reforms and insist the proportion of payments retained in trust accounts should be lowered.
White Hart Associates head of travel Chris Photi noted of current Atol escrow trust arrangements: “If you collect £1,000 from a customer, you put £700 in trust and have access to £300.”
Speaking at the recent Travel Weekly Future of Travel conference, he asked: “Why 70%? Atol holders selling direct to the customer generally take 50% or more bookings with a credit card.
“In a failure, the CAA will pass responsibility to reimburse those bookings to the merchant acquirer. The CAA has 20% headroom.”
Photi argued: “There is clearly a rationale for less than 70% to be segregated for most Atol holders.”
Travel Trade Consultancy director Martin Alcock agreed, telling the conference: “The CAA has never said why it’s 70%, but the average flight component of a package is about 30%. For some people it’s lower and some much higher. There is a strong rationale for changing the percentage.
“There are examples of people who have lower percentages as they’re building up escrow accounts. Possibly that is where we end up.”
The CAA launched the current Atol reform process more than two years ago and is expected to publish detailed proposals this autumn.
Photi said: “There is still no clarity.” But he told the conference: “There are clear indicators. Aviation minister Baroness Vere has stated twice: ‘Is it right to use today’s payments to fund tomorrow’s working capital?’”
He questioned whether “most travel companies do that”, saying: “Most companies use payments to pay component suppliers, principally airlines, because airlines won’t give you a flight seat unless it’s pre-paid.”
Photi argued there is “clear evidence the CAA is looking at the segregation of client monies”, suggesting “most of the large Atol holders” have been told by the CAA that “if you fail our liquidity covenants and don’t remedy it within 30 days, you will go straight to segregation of client monies”.
However, he noted: “A large proportion of businesses already have segregation of client monies.”
Themis Advisory director Jo Kolatsis agreed, saying: “A lot of businesses forced themselves into a form of segregation as a result of the pandemic, when financial failure insurance disappeared overnight. It was painful, but they are a lot better prepared [for reform].”
Alcock insisted: “There is confusion at the heart of this. Baroness Vere saying businesses shouldn’t use customer money for working capital makes sense if you’re using customer money to invest. There was a famous example of somebody using customer money to invest in a football club. Clearly, that is not right.
“[But] the CAA conflated that with using customer money to buy flights and hotels. To me, that is what it’s there for.”
However, he argued: “It seems there has been a shift in mindset at the CAA. They have listened and realise the one-size approach isn’t going to work. What they end up introducing will be a bit more flexible, but everyone is going to have to provide protection.”